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Indusind Bank: The Indus Roars In Its Flow
The bank has proved it makes sense to stick to basics
Photo Credit : Ritesh Sharma
Over the last few years, IndusInd Bank has come to hold its own against some well-known private rivals; it’s also been a remarkable comeback story. For its stellar performance in a particularly tough year for banking, IndusInd Bank has bagged the ‘Best Mid-sized Bank’ award, and managing director & CEO Romesh Sobti has received ‘The Banker of the Year’ in the BW Businessworld Best Banks’ Survey 2016.
Says Sobti: “Fiscal ’16 was not easy for the banking sector, but it didn’t deter us from posting growth. We continued to focus on increasing earnings from the core-banking business, strengthening fee income-streams, and maintaining control on operating costs.”
Parsing The Numbers
Net-profit rose 27.47 per cent to Rs 2,286.45 crore; net-interest income was up 32 per cent at Rs 4,516.57 crore; the return-on-assets stood at 1.91 per cent (1.90 per cent). Total advances and deposits grew 29 per cent to Rs 88,419 crore and deposits rose 25 per cent to Rs 93,000 crore.
While the yield on advances fell 88 basis points (bps) to 12.24 per cent, cost of deposits dropped by 67 bps to 7.25 per cent. This led to a healthy net-interest margin of 3.81 per cent (3.65 per cent) — a reflection of the composition of its assets, benign interest-rate movements, timely equity infusion in July-August 2015, and a judicious mix of resources through deposits and borrowings (including cross-border) and refinance.
The rise in profitability was the result of growth in net-interest and non-interest income — the former improved by 32.05 per cent to Rs 4,516.57 crore; the latter by 29.30 per cent to Rs 3,296.95 crore. Core-fee income, such as commission, account management charges, fee from i-banking and distribution of third-party products, and earnings from foreign exchange business, grew by 25.95 per cent to Rs 2,809.59 crore.
The bank’s exposure to large corporates stood at Rs 25,258 or 29 per cent; mid-sized corporates at Rs 16,624 (19 per cent) and small corporates at Rs 9,988 (11 per cent). The corporate: consumer business mix ratio stood at 52:48.
The consumer finance division, which lends auto loans, saw disbursements rise 31 per cent to Rs 20,369 crore. New loan accounts, numbering 10.30 lakh, were onboarded (9.78 lakh). The focus during the year was on optimising the product mix to maximise yields, while maintaining portfolio quality. Loans for used vehicles grew 26 per cent to Rs 3,499 crore. In the new-vehicle segment, loans for commercial vehicles registered growth of over 50 per cent to Rs 6,924 crore, higher than the industry rise. Tractor loan disbursements rose 250 per cent to touch Rs 857 crore.
Growth has not been at the cost of quality; non-performing assets (NPA) were on a tight leash. Net-NPAs stood at 0.36 per cent (0.31 per cent); the provision coverage ratio at 59 per cent (63 per cent).
In fiscal ’16, IndusInd Bank acquired the diamond and jewellery financing business in India and related deposit portfolio of Royal Bank of Scotland. The acquisition made a strategic fit as the bank specialises in the trade; the deal enhanced its position.
Portfolio buyout — as opposed to buyouts of entire financial services firms — is a good way to jumpstart a particular business vertical. The last major deal of this kind was done in 2011 when IndusInd Bank picked up the Indian credit card business of Deutsche Bank for Rs 224 crore. In one fell swoop, the buyout gave IndusInd access to nearly 2,00,000 card holders; 200 sharp suits who know how to run operations; and the entire back-end paraphernalia. Plus, something money alone can’t buy. “The deal helped cut down on a rollout time of nearly 12 to 18 months, if we had to start issuing plastic from scratch,” Sobti had told BW at the time of the deal. The credit card business has been scaled up and grown in distribution and profitability, while staying focused on the quality of customer receivables.
Portfolio buyouts are not new to Sobti. As ABN Amro Bank’s country head in 1999, he had led the Dutch bank’s $200-million buyout of BankAm’s pan-asian retail book to help it jumpstart local operations.
Last year IndusInd rolled out branches aggressively — 199 were added in fiscal ’16 taking the count to 1,000. “The branch infrastructure is being effectively leveraged towards new account bookings and cross-sell initiatives,” says Sobti. It also expanded its ATM network to 1,800 by opening 313 new ATMs; and partnered with white label ATM operators to set up co-branded ATMs.
Playing For Tomorrow
“The bank’s focus during the year was on sustaining and maintaining a high-street brand. To attain this objective, we adopted various initiatives that increased its visibility while communicating with consumers in their space, using the most engaging approach — digital,” says Sobti. The bank launched Quickpay — an instant money transfer service wherein IndusInd Bank customers can send money to their personal contacts and business parties through SMS, e-mail and social media platforms, without beneficiary bank account details.
Then there was On The Go, a social banking initiative that offers customers a host of services including transactions through social platforms. Apart from checking account balance, or locating nearest ATM/branch, users can also use the platform to transfer money through Facebook and Twitter.
A third initiative was IndusInd Pay — a mobile banking application that offers a simple, fast and secure way of banking on the go. Customers can check their account balance, transfer money, recharge mobile and enjoy a multitude of other banking and payment services anytime, anywhere.
“Digitising businesses has been a key thrust area and most offerings across payments, lending, deposits, and third-party distribution products were enabled for online sales and service,” says Sobti. The bank tied up with most of the leading financial aggregator portals for online acquisition of clients, besides working with leading e-commerce and payment services providers to offer payment solutions to retail, business and institutional clients, including government bodies.
All of this resulted in the bank moving up six places in the BrandZ Top 50 ‘Most Valuable Indian Brands of 2015’ list, adjudged by WPP and Millward Brown. Up from 19th rank to 13th, IndusInd Bank, with a 46 per cent increase in the brand value to $1.5 billion, became the ‘Top Riser Brand of the Year’. The bank has travelled a long distance. In October 2009, a Mint Road draft paper on new private bank licences had alluded to IndusInd Bank in a recall of the narrative of the first lot of new entrants: “one bank has just about survived”. Five years earlier, it nearly got beached when Ashok Leyland Finance, a subsidiary of Ashok Leyland (a Hinduja firm), merged into it. The bank had to deal with a non-banking finance company — with a distinct business model — in its closet.
A year earlier when Sobti walked in from ABN Amro Bank, there was hardly any investor coverage; today, the world can’t have enough of the bank!